CAS Exam 7 Spring 2016, Question 4
Study guide: Exam 7
Given the following information for an insurer's book of business as of December 31, 2015:
| Accident Year | On-Level Premium ($000) | Paid Losses ($000) |
|---|---|---|
| 2012 | 800 | 480 |
| 2013 | 1,000 | 530 |
| 2014 | 1,500 | 640 |
| 2015 | 1,250 | 290 |
- The expected loss payment pattern for the insurance company was approximated by the following function, where
Gis the cumulative proportion of ultimate losses paid andxrepresents the average age (in months) since accident occurrence:
G(x) = \frac{x^{1.1}}{x^{1.1} + 8.0^{1.1}}
- The expected loss ratio (ELR) is 62.5% for this book.
Part a (0.75 points)
Use the Cape Cod method to calculate the expected unpaid losses for accident year 2013.
Part b (1 point)
Evaluate the appropriateness of using the Cape Cod method with a constant ELR for this book of business.
Answer this question and see the worked solution